What is the first thing that comes to mind when you see or hear the words, “stock market?” Is it the overflowing amounts of money? Maybe it is the grid that shows red and green crooked lines on a big screen? Or perhaps you think of big companies with loads of shares for potential investors? No matter how you approach the subject, it is no secret that investing in the stock market can sound like a big and taxing task. There are terms and conditions you will have to know before you give away your hard-earned cash. But fear not—we are here to bring you up to speed with the basics.
To start, we have to ask: What exactly is the “stock market?” According to the Corporate Financial Institute, the stock market is a market for selling and buying issued stocks for different companies, which can then be traded through stock exchange or over-the-counter. In the Philippines, we have the Philippine Stock Exchange (PSE) for that. From this definition, we can spot the next term to define: stocks. These are described as the “shares” within the company to be bought, sold, and invested in. There are many major local companies that are part of the PSE that you can buy shares of such as Jollibee Food Corporation, PLDT, and Manila Water.
Moving along, we define the verb “invest.” You may have heard this word being thrown around when it comes to stock trading. This is because when you invest, you are “putting your money where it can grow” in exchange for an ownership stake in the company.
Now, who are the key players within the stock market? First is the company, which is divided into shares to attract potential investors. On the other side of the spectrum, there is the investor, which is where you come in. As previously mentioned, you invest your money, in exchange for a share in the company. Not only is the company making money through your investment, you also make money as the company’s stock prices increase. As of writing, the stock prices of almost all businesses have plummeted due to the COVID-19 pandemic’s effect on the economy. The economic status of the country received a major drop, and this directly affected the Philippines stock market. In fact, Philippine stocks plunged by 6.8% due to the pandemic, which has been the worst since the 2008 global financial crisis.
Aside from the company and the investor, there is what we call the “middle man” when it comes to stock trading: the stock broker. In the Philippines, these people are licensed to do the trading in the Philippine Stock Exchange. Take note that there are 2 types of stock brokers. Traditional brokers such as First Metro Securities Inc. and Angping and Associates Securities Inc. are firms that you can easily contact and ask for advice before making an investment. On the other hand, online brokers such as BPI Securities Corporation and UCPB Securities are usually institutions that are programmed to buy and sell stocks through your own transaction. Something to consider is that you need to have research about the stock market and trading before transacting with an online broker, since there is no one to guide you through it, unlike when asking from a traditional broker.
Let’s say you have done your research regarding the practice of stock trading and investments, plus you have found a reliable stock broker to assist you. You now need to learn how to open your own trading account. Generally, stock brokers will ask for a few documents from you before setting up your account, which include: their application form, 2 valid government IDs, and your Tax Identification Number (TIN). Once your application has been approved, then you can start depositing a capital investment for your account. Now that your account is all set, there is one last thing you need to learn before diving into the world of stocks.
The FTSR Framework will help you understand what you are getting into by providing you key elements within the stock market and helping you weigh in all important components. Through this way, you will be able to determine the requirements, benefits, and disadvantages of investing in the stock market.
- F stands for “Fundamental Analysis,” which evaluates economic and financial factors, both qualitative and quantitative, that affect the intrinsic value of the company.
- T stands for “Technical Analysis,” which uses a history of data and computations to decipher the company’s future movement within the market.
- S stands for “Sentiment,” which involves market psychology. You have to understand how investors behave in order for you to adjust your profit expectations.
- And R, which stands for “Risk Management.” You learn tips and tricks on how to maximize your profit, lessen the risks, and keep your mental state in check.
Stock trading can be quite intimidating if you do not know how to play your cards right. You have to continuously research market trends and find investment strategies that will work best for you. Nevertheless, once you are familiar with the basics, you can dip your toes in the pool of stocks, until you create a system that will help you gain more money in the long run.